Dividends in specie : the granting of services or the right of use of assets

Kok, Michael ; Nel, Rudie (2019)

CITATION: Kok, M. & Nel, R. 2019. Dividends in specie : the granting of services or the right of use of assets. De Jure Law Journal, 52:221-241, doi:10.17159/2225-7160/2019/v52a14.

The original publication is available at http://www.dejure.up.ac.za

Article

Dividends in specie are not defined by the Income Tax Act, which could result in uncertainty whether the granting of services or the right of use of assets to shareholders would be included in the ambit thereof. The uncertainty could result in the opportunity for dividends tax to be avoided and could also result in applicable deductions, claimed by the declaring company, not being recouped for tax purposes. This article investigated whether the granting of services or the right of use of assets to shareholders would constitute dividends in specie for purposes of the Income Tax Act by considering the South African perspective as well as guidance based on international practices. The article submits that a broad interpretation of the meaning of “dividend” and “in specie” in the Income Tax Act supports the granting of services or the right of use of assets as constituting dividends in specie. Furthermore, the context of the provisions contained in the Income Tax Act considered in this article, does not indicate findings contrary to the broad interpretation of the meaning of “dividend” and “in specie”. The guidance obtained from investigating international practices of selected countries also indicated that the granting of services or the right of use of assets constitute dividends or shareholder benefits on which shareholders are taxed. This article concludes that the granting of services or the right of use of assets would constitute dividends in specie and that the specific guidance on the valuation of such benefits in terms of the Seventh Schedule to the Income Tax Act, could possibly be extended to the application in the context of dividends tax.

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